At the end of the day, companies exist to sell a product or service. When times are tough, some goods are seen as luxuries. But many items are necessities. That’s why investors tend to pile into defensive stocks like consumer goods companies during a bear market.
A bear market also helps to bring down valuations across the board. That makes defensive stocks, typically priced fairly high relative to their growth prospects, a much better buy ahead of a market turnaround.
For example, Tyson Foods (TSN), saw sales beat forecasts.
The meat producer has seen earnings grow just 0.1 percent over the past year. Yet with a 20 percent drop in shares, the stock is now valued at less than 9 times forward earnings.
Plus, given the company’s 8 percent revenue growth, it’s clear that they’re able to raise prices and somewhat offset inflation. That’s the kind of trait to look for in a defensive investment during a bear market.
Action to take: Investors may like shares here. The stock yields about 2.7 percent at current prices. With a low payout ratio under 20 percent, there’s room for dividend growth in the future.
For traders, shares have flattened out in recent weeks following a general decline over the last year. Traders could fare well betting on a sizeable rebound in the months ahead.
The June 2023 $65 calls, last going for about $2.30, offer a way to play such a rally. Look for mid-to-high double-digit returns on the trade before taking profits.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.